HP CEO Hurd resigns over sexual harassment investigation

Company investigation finds Mark Hurd "exhibited a profound lack of judgment," engaging in a relationship with a contractor and approving incorrect expense reimbursement for her. CFO Cathie Lesjak will take over as interim CEO.

Hewlett-Packard Chairman and CEO Mark Hurd resigned from the company Friday after HP conducted an investigation into allegations of sexual harassment.

Hurd's resignation marks a stunning end to what had been by most accounts a wildly successful five years at the helm of what is now the largest computer company in the world, measured by total revenues.

The resignation takes effect immediately. He will be replaced by Chief Financial Officer Cathie Lesjak, who will act in an interim capacity.

HP said its board of directors reached a unanimous decision after Hurd was accused of sexual harassment by a former marketing contractor to HP in late June. HP says its own investigation found "no violation of HP's sexual harassment policy, but did find violations of HP's Standards of Business Conduct (PDF)."

On a conference call with the media Friday afternoon, HP General Counsel Mike Holston said Hurd had a "close, personal relationship" with a female contractor for two years between the fall of 2007 and 2009 that he did not disclose to the board of directors. The name of the contractor and her contracting firm were not disclosed.

The contractor has retained Gloria Allred of the Los Angeles-based law firm Allred, Maroko & Goldberg as her attorney. Allred confirmed she is representing the woman, who she declined to identify, and also said in a statement that "we wish to make clear that there was no affair and no intimate sexual relationship between our client and Mr. Hurd," throwing the exact nature of Hurd's "close personal relationship" with the woman into doubt.

Allred is one of the more famous sexual harassment lawyers in the business, taking high-profile cases and popping up in the media on a regular basis. She also declined to comment on any pending litigation against Hurd or HP.

Holston said the company's investigation revealed that the contractor had received compensation and incorrect expense reimbursement from Hurd as part of a systematic attempt to conceal his relationship with her.

The relationship reportedly consisted of private dinners between the two after marketing events she attended with Hurd in the U.S., Europe, and Asia. When reporting expenses for those dinners, he would say he ate by himself or with someone else, according to the New York Times. The same report cites a person close to Hurd saying that Hurd denied there was any romantic link between him and the contractor.

I realized there were instances in which I did not live up to the standards and principles of trust, respect, and integrity that I have espoused at HP and which have guided me throughout my career.

--Mark Hurd

HP's board was notified of the matter after receiving a letter from the outside contracting firm on June 29. HP conducted an investigation with outside investigators and concluded that Hurd's conduct "exhibited a profound lack of judgment," according to Holston.

The amount of expenses involved is not material to HP, according to Holston. "The facts that drove the decision for the company had to do with integrity, with credibility, and honesty," he told investors on a call Friday.

Hurd at first offered, instead of resigning, to repay HP for the amount of the misreported expenses, which range somewhere between $1,000 to $20,000, according to a report in the New York Times, citing a source described as a person close to Hurd. But HP's board insisted he step down.

"As the investigation progressed, I realized there were instances in which I did not live up to the standards and principles of trust, respect, and integrity that I have espoused at HP and which have guided me throughout my career," Hurd said in a prepared statement.

Hurd will receive a severance payment from HP of $12.2 million, plus other stock benefits, on the condition that he agrees not to pursue any legal action against the company, according to the separation agreement HP filed with the SEC on Friday.

Hurd joined HP in 2005 as CEO and president and was named chairman of the board in September 2006. Prior to that he spent 25 years at NCR, where he became CEO in 2002.

Hurd was brought into the company to provide stability after the turbulent tenure of the charismatic Carly Fiorina, who is now a Republican candidate for U.S. Senate in California. Stability, growth, and profits are exactly what Hurd provided.

His by-the-book focus on operations was paired with both aggressive cost-cutting and acquisition strategies, particularly in consulting and business software. He is credited with returning fiscal and operational discipline to HP following Fiorina's tenure, and built HP through a series of acquisitions into one of the tech industry's largest companies, with large software, hardware, and services units. The company's market capitalization increased $44.6 billion, rising to $108.1 billion since Hurd took over as CEO in April 2005.

In his early tenure he steered the company through embarrassing revelations that former chairwoman Patricia Dunn headed an effort to spy on reporters, including three from CNET. HP investigators obtained the private phone records of the journalists, company board members, and employees in an effort to uncover a news leak within the company.

Hurd was called to testify before Congress in September 2006 and acknowledged that he signed off on many of the tactics used by HP investigators, but denied having prior knowledge of a tactic known as pretexting, the term used to describe the obtaining of records through the use of false pretenses. Subsequent to the HP spying scandal, a law was passed outlawing pretexting.

Dunn ultimately resigned and Hurd took control of HP's board, solidifying his hold on the company.

Looking forward
The company said Friday it does not expect to make any additional structural or leadership changes in the near future.

Cathie Lesjak, interim CEO
HP

"We thought it was important for people to appreciate that the announcement today has nothing to do with the operational performance of the company, it is all about Mark's behavior and judgment," Lesjak said on the call Friday.

Lesjak has been with HP for more than 24 years, serving in various financial leadership capacities. She has served as CFO since January 2007. However, she has already taken herself out of consideration for the permanent role.

HP has put together a search committee for a new CEO and board chair consisting of several members of its board of directors including Marc Andreessen, Lawrence Babbio Jr., John Hammergren, and Joel Hyatt. HP's lead independent director, Robert Ryan, will continue in that position. The committee will be considering both internal and outisde candidates. "We are going to move as fast as possible, but we're going to make sure we get the right CEO for the company," Andreessen said.

HP's stock price was down just over 1 percent to $45.83 in after-hours trading immediately following the news. Trading of HP stock was halted at 1:05 p.m. PDT. Trading eventually resumed at 2 p.m., and HP's stock plunged 9 percent.

HP on Friday also raised its full-year outlook for revenue. The company is due to announce third-quarter earnings on August 19. Friday it released preliminary results for the third fiscal quarter 2010, including revenue of $30.7 billion.

For the full year, HP said it is raising its outlook to between $125.3 billion and $125.5 billion, and earnings per share in the range of $3.62 to $3.64, including after-tax costs of 87 cents per share.

Update:Updates with more information have been made throughout this story since it was initially published.

About the author

Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur.
See full bio